Business Succession and Asset Protection
Many accountants and financial planners are unaware of the impact that the Personal Property Securities Act (which commenced on 30 January 2012) can have on business succession.
The upshot is that non-compliance with the Act can totally negate the best business succession plans, even those using our ATO approved insurance trust deed (Product Ruling 2010/18).
Consider the recent Hastie case, heard 13 July 2012, where administrators wrote to 995 security interest holders (this sheer volume indicates the teething problems that ITSA is having with the PPS Register!) seeking details of their security interests. But only 20% replied.
The administrators sought court directions and his honour Yates J ordered that the administrators were entitled to sell all plant and equipment in respect of which security interest holders had not replied – and use the proceeds to pay out the unsecured creditors!
The orders torpedoed the rights of the security holders who had not replied and deprived them of their legal rights.
Clearly, business proprietors (and their advisors) need a lot more coaching in how to protect their interests.
When they receive a letter from an interested party asking for more information about their security interest and how it arose, then they must reply.
We have also heard that security holders are still unaware of the potentially devastating effect that non-compliance with the Act can have on their business particularly where they have inventory, stock, equipment and other goods in the possession of others.
For example, equipment on consignment, or goods sold under a retention of title arrangement and located off site, or inventory leased to others.
All these situations have one thing in common: the equipment or goods are owned by one business but in the possession of another: for example, consider a steel pipe supplier who supplies now but gets paid later, or a company which rents out furniture to a builder to house the furniture in the builder’s show homes, or a motor car dealer who only pays for the cars when he sells them to the consumer. In all these situations:
(i) if the customer goes bust, and the Act is not complied with, then the equipment or goods in the possession of the customer can be sold by the receivers appointed by the customer’s bank;
(ii) the receivers can use the proceeds to pay out the customer’s bank (and other creditors of the customer);
(iii) regardless of the fact that the customer does not own them.
Ignorance is not bliss when it comes to the PPS. As part of a Business Succession Plan, the business must update their terms and conditions of trade to take into account this draconian new law.